DBS

DBS: Deutsche recently hosted DBS non-deal road show in New York and below are the key areas raised during the investor meetings:

Net Income Margin: SGD lending book should continue to benefit from higher SIBOR while funding costs have recently eased in HK post 1Q15, with improved offshore RMB liquidity.
Non-interest income has been a key strength. The Wealth Management (WM) success so far has come from its lower than peers cost-to-income ratio, ability to bring products in single platform, the growing wealth in the region, supported by strong credit rating of the bank.

DBS hopes to achieve cost efficiencies and drive more revenues by continuing to invest in technology and digital banking platform, achieving a lower cost-to-income in longer run.
Loan growth remains a key challenge for DBS as well as the sector, nonetheless the pipeline remains strong despite some unwinding of trade loans seen in prior quarter.

While HK & SG remain bulk of group earnings (e.g. 82%), these franchises should provide good leverages to China, India and Indonesia, higher growth markets in long run – by focusing in large corporate, SME business, affluent banking, supported by its digital footprint.

The house gives a BUY rating with TP: $23.20 as DBS is their top pick in the sector supported by earnings resiliency, more upside catalysts (best geographically position in higher US rates, WM and recent strength in USD) than peers.


#SG Strategy: For 2H15, UBS maintains an optimistic view of the property developer and transport sectors, where regulatory tailwinds are anticipated.

On the contrary, regulatory headwinds will intensify significantly in the telcos sector, over concerns of a 4th mobile operator. They maintain neutral on banks on loan growth concerns, while capital goods (offshore) could be value traps as positive catalysts are lacking. As US inches closer to its 1st hike in the Fed Funds rate, be cautious on the REITs.

Almost all sectors have suffered consensus earnings estimate downgrades, especially in the capital goods and consumption-linked name. The transport sector has the best earnings outcome YTD, on the back of: (a) lower operating costs such as fuel (SIA, NOL, SMRT, CDG) and fees (SATS), (b) improvement in regulatory environment (SMRT, CDG).

UBS preferred picks are: CapitaLand, ComfortDelGro, CapitaRetail China Trust, GLP, Jardine Matheson, SATS, SMRT, UOB, UOL Group, Wilmar and Yangzijiang.